What Is Bank Reconciliation? Importance, Template, & Examples
Côme Chevallier
Jun 12, 2025
Bank reconciliation is the process of matching the transactions recorded in your company's accounting records with those listed on your bank statement. This ensures that all financial records are accurate and up to date, reducing discrepancies and preventing fraud.
Businesses regularly perform bank reconciliation to confirm that their cash book balance aligns with their bank's records. If differences exist, they need to be investigated and corrected to maintain accurate financial reporting.
Keep reading to learn more about:
Looking to streamline the bank reconciliation process, reduce manual errors, and unlock more transparent financial operations?
Importance of Bank Reconciliation
Bank reconciliation plays a critical role in maintaining accurate financial records and ensuring the overall financial health of a business. Without regular reconciliation, errors and discrepancies can go unnoticed, leading to financial mismanagement and potential compliance issues — but more importantly, it can directly impact how the business performs and how customers experience your operations.
One of the primary benefits of bank reconciliation is error detection. It helps identify mistakes such as duplicate transactions, incorrect entries, or missing deposits. These errors, if left unchecked, can distort financial records and lead to incorrect financial statements.
Fraud prevention is another key reason to reconcile bank statements. Unauthorized withdrawals, forged checks, or fraudulent transactions can go undetected without regular reconciliation. By reviewing discrepancies between the bank statement and internal records, businesses can catch suspicious activity early and take corrective action.
Maintaining a clear picture of cash flow management is crucial for any business. Without regular bank reconciliation, companies might overestimate their available cash, leading to budgeting errors and cash shortages. By aligning bank records with internal books, businesses can make more informed financial decisions.
From a compliance standpoint, accurate bank reconciliation ensures businesses meet tax obligations and regulatory requirements. Inconsistent financial records can raise red flags during audits and lead to penalties or legal complications. Keeping financial data accurate and up-to-date helps businesses remain compliant with accounting standards.
Reconciliation helps prevent overdrafts and penalties. Without proper tracking, businesses may issue checks or payments without realizing there are insufficient funds in their accounts. This can result in bank fees, overdraft penalties, and damaged relationships with vendors and suppliers. Regular reconciliation ensures that all issued payments are accounted for, reducing the risk of financial mismanagement.
But perhaps the most consequential impact is on cash collection — where reconciliation has a direct line to revenue performance and customer experience. When payments aren’t applied correctly or promptly, it leads to delays in cash inflow, redundant follow-ups, and unnecessary customer friction.
Incorrectly applied or unapplied cash means collection teams may chase customers who have already paid, invoice the wrong amounts, or fail to follow up when money is still owed. This creates frustration for customers and undermines the credibility of the finance team.
Worse still, it impacts Days Sales Outstanding (DSO) — a critical cashflow metric. Research from The Hackett Group shows that companies with ineffective reconciliation and payment matching processes can experience up to a 15% increase in DSO, creating significant pressure on working capital and revenue recognition.
In a market where cash is king and customer trust is fragile, these are not just internal inefficiencies — they become visible business challenges. Bank reconciliation is no longer just a process to catch errors; it’s a fundamental control point that protects financial performance, supports customer retention, and enables the finance team to operate as a true business partner.
What Is a Bank Reconciliation Statement?
A bank reconciliation statement (BRS) is a document a company prepares on a specific date to reconcile the balance in its cash book with the balance shown in their bank account. This statement highlights discrepancies and reasons for differences between the two balances.
Common Reasons for Discrepancies:
Outstanding checks: Payments recorded but not yet cleared by the bank.
Deposits in transit: Funds recorded in books but not yet reflected in the bank account.
Bank fees and charges: Often deducted without prior notice.
Errors in recording transactions: Mistakes in data entry on either side.
Template: Bank Reconciliation Statement
A typical bank reconciliation statement follows this format:
Bank Reconciliation Statement as of [Date]
How to Reconcile a Bank Statement + Example
Steps to Reconcile a Bank Statement:
Compare Opening Balances: Verify that the beginning balances in both the cash book and bank statement match.
Check Transactions: Match deposits, withdrawals, and checks issued.
Identify Discrepancies: Note missing transactions, bank charges, or timing differences.
Adjust Entries: Make necessary journal entries to correct the records.
Verify and Finalize: Ensure both statements align after adjustments.
Bank Reconciliation Example:
A company’s cash book shows a balance of $10,000, while the bank statement shows $8,500. The difference is due to:
Outstanding checks: $800
Bank fees: $200
Deposits in transit: $500
After adjusting for these differences, the adjusted balance matches the bank statement.
How Can Upflow Help with Reconciliation?
Automated Cash Application
Automatic cash application in Upflow ensures that transactions are matched automatically, minimizing the chances of human error. By reducing the manual effort of matching receipts to payments, our customers accelerate their reconciliation processes and improve financial accuracy.
With Upflow’s cash application module, payments are automatically linked to invoices, reducing the risk of unallocated payments.
This streamlined process ensures that all incoming funds are correctly accounted for, preventing discrepancies between internal records and bank statements.
As part of this functionality, smart exception handling allows Upflow customers to quickly identify and resolve mismatches such as overpayments or short payments. Customizable automation rules further enhance efficiency, ensuring that businesses can reconcile bank statements accurately and in less time.
Real-time tracking and integrations keep financial records continuously updated. By syncing bank accounts and integrating seamlessly with ERPs, Upflow ensures that reconciliation happens in real-time, eliminating delays in financial reporting.
Bringing Payments Online with Payments by Upflow
Many businesses still rely on outdated payment methods like checks, which create reconciliation challenges and slow down cash flow.
Checks often result in delays, lost payments, and a lack of visibility into payment statuses, making the reconciliation process unnecessarily complex.
Payments by Upflow offers a modern solution by helping B2B businesses transition to digital payment methods that improve efficiency and accuracy.
By bringing more payments online, Upflow not only helps businesses get paid faster but also significantly reduces the complexity of reconciliation.
With online payments like credit cards and direct debits, transactions are instantly recorded and automatically matched, eliminating the manual tracking required for traditional methods. This shift helps businesses free up time, reduce errors, and gain real-time insights into their financial health.
Real-time Accounts Receivable Analytics
Added to that, advanced analytics and reporting provide valuable insights into cash flow and reconciliation trends. With real-time data, businesses can optimize their accounts receivable processes, detect discrepancies faster, and improve overall financial management.
Summing Up
Regular bank statement reconciliation ensures financial accuracy, reduces fraud risks, and improves cash flow management. Tools like Upflow can significantly improve efficiency and accuracy in your bank statement reconciliation process. Investing in automated reconciliation tools not only saves time but also enhances financial transparency, making it a vital part of sound business accounting practices.
Frequently Asked Questions (FAQs) on Reconciling Bank Statements
Q: How often should I reconcile my bank statements?
A: It is recommended to reconcile bank statements at least once a month. However, businesses with high transaction volumes may benefit from weekly or even daily reconciliation to ensure financial records remain accurate.
Q: What happens if I don’t reconcile my bank statements?
A: Failing to reconcile your bank statements can lead to undetected errors, fraud, and financial mismanagement. It can also result in overdrafts, missed payments, and inaccurate tax reporting.
Q: What is the difference between bank reconciliation and cash reconciliation?
A: Bank reconciliation focuses on matching transactions recorded in the company’s books with those on the bank statement. Cash reconciliation, on the other hand, involves verifying all cash transactions, including physical cash, checks, and electronic payments, to ensure proper accounting.
Q: Can I automate bank reconciliation?
A: Yes, automation tools like Upflow and NetSuite help businesses streamline bank reconciliation by automatically matching transactions, detecting discrepancies, and integrating with financial systems to ensure accurate record-keeping.
Q: How do I handle discrepancies in my bank reconciliation?
A: Discrepancies should be investigated by checking for outstanding checks, deposits in transit, bank fees, and potential errors in recording transactions. Adjustments should be made in the books to correct any mismatches.
Q: What documents do I need for bank reconciliation?
A: You typically need your company’s cash book, the bank statement, and records of any outstanding transactions such as checks or deposits that have not yet cleared.